China Tariff Threatens U.S. LNG Boom

[BlackTortoise + 103]

China’s move to impose tariffs on U.S. liquefied natural gas imperils the ability of a burgeoning industry to export the bounty of American shale. Retaliating against new Trump administration tariffs on $200 billion in Chinese goods, China on Tuesday issued levies on $60 billion of U.S. products, including a 10% tariff on  LNG. Although the tariff was only 10 percent, rather than the initially threatened 25 percent, it is still bad news for U.S. LNG producers, because it complicates long-term contracts and export terminal plans. 
 

[John Foote + 1,135]

tit for tat and BATNA (best alternative to a negotiated settlement) have been proven over time to be the best technique when principled negotiations won't work. the USA LNG real role isn't supply China and Europe and Japan and whomever. It's to keep Qatar and Australia, and Russia, in line for what they charge. This weakens the hedge factor somewhat. 

Be glad you aren't a soy farmer. 

[ceo_energemsier + 1,818]

42 minutes ago, John Foote said:

tit for tat and BATNA (best alternative to a negotiated settlement) have been proven over time to be the best technique when principled negotiations won't work. the USA LNG real role isn't supply China and Europe and Japan and whomever. It's to keep Qatar and Australia, and Russia, in line for what they charge. This weakens the hedge factor somewhat. 

Be glad you aren't a soy farmer. 

have had this discussion on this forum elsewhere, China doesnt have the "teeth" to cut it out and win in a trade war with the US. They need the US more than the US needs China. They need to kepp their population, heated, warm and fed and not starving and freezing in this coming winter.

They added only a 10% tariff on US LNG and crude oil is still off the list.

https://finance.yahoo.com/news/china-pretending-like-trade-war-isnt-happening-185859742.html

 

[Andrew Sun + 17]

18 minutes ago, ceo_energemsier said:

They added only a 10% tariff on US LNG and crude oil is still off the list.

https://finance.yahoo.com/news/china-pretending-like-trade-war-isnt-happening-185859742.html

 

They have always said that their retaliation tariff will be proportional. So the 10% will go higher when Trump's goes higher.

I supposed they will add US crude oil on the next escalation. But you are right, they will run out things to counter Trump soon enough.

Edited September 19, 2018 by Andrew Sun

[ceo_energemsier + 1,818]

4 minutes ago, Andrew Sun said:

They have always said that their retaliation tariff will be proportional. So the 10% will go higher when Trump's goes higher.

I supposed they will add US crude oil on the next escalation. But you are right, they will run out things to counter Trump soon enough.

Yes they may increase it by another 10% at some point down the road and add some tariff to us crude on an incremental basis, but now they are saying they dont want a "tit for tat" situation.

It is almost October and winter in China is not too far away, they need reasonably priced agri and food commodities and reasonably price energy products like heating oil, furnace oil, diesel, crude, coal and natgas (LNG) and US is a safe, stable and reliable producer and supplier of all these.

[Andrew Sun + 17]

1 hour ago, ceo_energemsier said:

It is almost October and winter in China is not too far away, they need reasonably priced agri and food commodities and reasonably price energy products like heating oil, furnace oil, diesel, crude, coal and natgas (LNG) and US is a safe, stable and reliable producer and supplier of all these.

Purely from the point of view of "what can they do", I think the Chinese still have options.

They can substitute some American agri and food commodities. For example, Thailand's holding a 12% share in China's fresh fruits market. America's 8% in the same market. Thailand plans to boost market share this fall and winter to take a bigger piece of that pie. Brazil is looking to do the same. I'm sure many other producer nations are looking to take advantage of the current situation.

China can still go back to coal for winter heating until the trade dispute is resolved. After all, coal was what they mainly used until the spring of 2016. If this trade war drags on, the Chinese can keep using coal until the new Russian pipeline starts moving natural gas.

[Jan van Eck + 7,558]

Responding generally to the comments going back and forth, above, between ceo-energemsier  and Andres Sun, I would chime in that China's options are more limited than either of you realize.  

First, the geography aspect:   China's capital city has some astronomical population of vast millions, I shudder to even guess.  That capital sits only 80 Km., figure 50 miles, from the front edge of an expanding Gobi Desert.  The winds that advance the desert front are from the West,  pushing hard,and build up a big frontal wave of sand that swallows anything and everything before it. That advance is not slow:  several miles a year!  Before long, Beijing is getting hit with a wall of moving, blowing sand sixty feet tall. 

Remembering first that the Communists that run that place are limited in numbers at the top, and that they have their plate already full, they simply do not have the luxury of getting involved in re-sourcing their soybeans and their LNG and their oil imports.  A certain irreducible minimum of time has to be scheduled to attend to the sand problem. Plus, the regime may well end up having to ask the Americans for assistance.  figuring out a way to stem that advance will require serious engineering and desert-ecology expertise. Slugging it out with the Trump Administration in some war of personality is not opportune. 

Second, the other reality is that the alternative sources to the USA are limited at best and likely non-existent at worst.  Brasil looks good from a distance, as a source of soybeans.  Up close, not so much.  The problem is that Brasil is unlikely to be able to supply the quantity of product that China demands, especially as the population becomes urbanized and farmers, particularly the marginal farmers sitting on that advancing front of the Gobi Desert, abandon their villages and head for the City.  Brasil's farms are up on a Plateau, and the seaports are down at sea level, obviously.  There is no rail down to the seaports.  The Brasilians have to use convoys of trucks to haul the product down narrow two-lane roads from the farms and down off the Plateau, convoys literally miles long.   You are not going to be able to move the tonnage that China requires using trucks.  US grains move down the Mississippi by barge, then get trans-loaded onto bulk ships in New Orleans.  That system has the ability  to supply China. 

So China can play the rebuffed suitor game for now, as their inventory bleeds down.  But once that runs out, they are out of realistic options.

With the LNG, putting on a tariff is not going to reduce their landed price; their own importers have to pay the tariff as a sort of "special tax."  Will the importers do that?  Answer:  probably.  Then that cost will get passed onwards. And the reason is that there is limited capacity inside the current LNG system of production and distribution, so either it is US gas or they have to displace someone else's gas buying, so that means bidding up the price to capture alternative supplies.  Well, that bidding war for product is going to be greater than the 10%, so in effect the tariff becomes a domestic internal Chinese tax that the importers have to pay to the central Government. 

Overall, I suspect China is even more locked in to the USA than the USA is into China.  

 

[ceo_energemsier + 1,818]

33 minutes ago, Andrew Sun said:

Purely from the point of view of "what can they do", I think the Chinese still have options.

They can substitute some American agri and food commodities. For example, Thailand's holding a 12% share in China's fresh fruits market. America's 8% in the same market. Thailand plans to boost market share this fall and winter to take a bigger piece of that pie. Brazil is looking to do the same. I'm sure many other producer nations are looking to take advantage of the current situation.

China can still go back to coal for winter heating until the trade dispute is resolved. After all, coal was what they mainly used until the spring of 2016. If this trade war drags on, the Chinese can keep using coal until the new Russian pipeline starts moving natural gas.

It will be cheaper for China to increase their Thai and regional Pac-Rim fresh fruits and veg imports. Again it comes to the reliability and sustainability of the supplies of hard agri and food commodities like corn, soybeans, wheat, soybean meals and other oil seed meals for their own livestock needs and to feed people as well. Brazil had issues with drought etc and are also running low for their post harvest season volume of soybeans and other hard food and agri commodities. It was stated that if China started importing all Brazilian sourced food and agri commodities it would only last a few more months.

Coming back to the matter of energy and coal, China can use their own coal and they do and will, however they also have a massive coal import demand , in addition to that for the Chinese Gov's goal of have Blue Skies & or Cleaner Air, they have shuttered coal plants in favor of NATGAS (=LNG), and yes they can import LNG from Qatar, UAE, Nigeria, Russia, Australia etc, however they also need and want to diversify and have stable, reasonable and sustainable/reliable cost effective supplies, which the US shale companies have proven to provide.

Chinese companies had completely suspend the buying of US crudes and have now started buying for October and Nov and Dec loading, and this includes their State owned Oilcos.

China with all its refinery capacity and while exporting some fuels, also imported fuel products from the US and other countries.

It is not in the best interest of China to continue the "charade" with their own people, as anyone doing business in China know and anyone who keeps up on the Chinese news media knows, they havent been talking about the trade issue with the US because it will cause a major problem with their population and they dont want another Tiananmen Square uprising.

The Chinese financial market has lost almost 5 trillion$ in value in just a few months. Wall street isnt hurting! but they are.

"

Print, online and television news outlets in China have largely stayed silent following Trump’s Monday evening announcement because of government censorship. People’s Daily, the state-run media mouthpiece for the Chinese government, didn’t dedicate any coverage to the major development. At 7 p.m. Tuesday local time in Beijing, Xinwen Lianbo, a flagship daily news program produced by China Central Television with a viewership of over 100 million, thoroughly covered President Xi Jinping’s whereabouts but made no mention of Trump’s tariffs and China’s plan to retaliate.

“Don’t touch the issue,” the government told other domestic media, Yahoo Finance learned. They have also been ordered to avoid writing about the recent market meltdown and other issues that suggest an economic recession.

“About the trade war — no one mainstream Chinese media has reported… what happened on earth?” one user asked on Weibo, China’s Twitter. Some users complained they were not able to post content containing the word “trade war.” For social media accounts operated by foreign news outlets, including the Wall Street Journal, the comment and repost feature for any trade-related posts have been disabled.

It was a stark contrast from months back, when media coverage on the trade tension was intense and state-run outlets were using an aggressive and hawkish tone to fuel the nationalistic sentiment, with headlines like “Never retreat” and “Hit America where it hurts.” Xinhua, the state-run news agency was promoting hashtag “fanji maoyizhan,” which translates to “fight back in the trade war.” But since July, the government has been trying to calm the public down and put restrictions on media coverage that include messages such as, “Don’t attack Tr The media silence doesn’t stop China’s market from feeling the pinch from the escalating trade war. The Shanghai Composite Index fell to its lowest close in nearly four years Monday after trade threats. And the exchange rate of the Chinese currency renminbi, weakened 45 basis points against the U.S. dollar on Tuesday. ump’s vulgarity,” according to censorship-monitoring site China Digital Times.

[Dan Warnick + 6,100]

5 hours ago, ceo_energemsier said:

have had this discussion on this forum elsewhere, China doesnt have the "teeth" to cut it out and win in a trade war with the US. They need the US more than the US needs China. They need to kepp their population, heated, warm and fed and not starving and freezing in this coming winter.

They added only a 10% tariff on US LNG and crude oil is still off the list.

https://finance.yahoo.com/news/china-pretending-like-trade-war-isnt-happening-185859742.html

 

The article at the link highlights what I laid out on this subject previously.  China controls the media and nationalism: what the people know and perceive and support.  China can back down and make it look like they "silenced" the U.S.  What better way to say "we win"?

Edited September 20, 2018 by Dan Warnick

[Jan van Eck + 7,558]

23 minutes ago, Dan Warnick said:

The article at the link highlights what I laid out on this subject previously.  China controls the media and nationalism: what the people know and perceive and support.  China can back down and make it look like the "silenced" the U.S.  What better way to say "we win"?

Remember that saying:  "Winning isn't everything; it's the only thing!"

[Rodent + 1,424]

2 hours ago, Jan van Eck said:

Remember that saying:  "Winning isn't everything; it's the only thing!"

but if it's the only thing, isn't it by definition, everything as well? 

[Rodent + 1,424]

7 hours ago, ceo_energemsier said:

They need to keep their population.....not starving and freezing in this coming winter.

Right. Cuz that was soooo last year. 

bad-ump-ump!

[Jan van Eck + 7,558]

2 hours ago, Rodent said:

but if it's the only thing, isn't it by definition, everything as well? 

I was quoting a certain MidWest football coach, Rodi; forgive the imprecision of language. 

[Dan Warnick + 6,100]

14 minutes ago, Jan van Eck said:

I was quoting a certain MidWest football coach, Rodi; forgive the imprecision of language. 

Hey, leave my homeland out of this!

[ceo_energemsier + 1,818]

On 9/19/2018 at 9:31 PM, Rodent said:

Right. Cuz that was soooo last year. 

bad-ump-ump!

 

[Jan van Eck + 7,558]

On 9/20/2018 at 1:42 AM, Dan Warnick said:

Hey, leave my homeland out of this!

Then you know who that Coach was!

[Dan Warnick + 6,100]

15 minutes ago, Jan van Eck said:

Then you know who that Coach was!

Ditka?

[Dan Warnick + 6,100]

4 minutes ago, Dan Warnick said:

Ditka?

Yeah, I know, it was Red Sanders from UCLA.  But Ditka liked it, and if Ditka liked it, that's good enough for Da Bears!

[Jan van Eck + 7,558]

6 minutes ago, Dan Warnick said:

Ditka?

Vince Lombardi.  Although he said it, he was re-quoting UCLA Bruins football coach Henry Sanders, from back in the early 1950's.  However, it is Vince who is most famously remembered for it (mostly because Vince was such a colorful character!). 

[John Foote + 1,135]

3 hours ago, Jan van Eck said:

Vince Lombardi.  Although he said it, he was re-quoting UCLA Bruins football coach Henry Sanders, from back in the early 1950's.  However, it is Vince who is most famously remembered for it (mostly because Vince was such a colorful character!). 

I think Vince putting the "Title" back in Title town USA, had something to do with it to!

[KevinH + 11]

On 9/20/2018 at 4:06 AM, ceo_energemsier said:

have had this discussion on this forum elsewhere, China doesnt have the "teeth" to cut it out and win in a trade war with the US. They need the US more than the US needs China. They need to kepp their population, heated, warm and fed and not starving and freezing in this coming winter.

They added only a 10% tariff on US LNG and crude oil is still off the list.

https://finance.yahoo.com/news/china-pretending-like-trade-war-isnt-happening-185859742.html

 

Another POV.

https://www.industryweek.com/economy/us-needs-china-more-china-needs-us

I'm in Australia. I work with chinese people here.

They get world news and are not restricted by state controlled news in China.

None have blinked about the US tariffs.

And I am sure no ones gonna freeze in China this coming winter.

[KevinH + 11]

On 9/20/2018 at 7:44 AM, Jan van Eck said:

Responding generally to the comments going back and forth, above, between ceo-energemsier  and Andres Sun, I would chime in that China's options are more limited than either of you realize.  

Remembering first that the Communists that run that place are limited in numbers at the top, and that they have their plate already full, they simply do not have the luxury of getting involved in re-sourcing their soybeans and their LNG and their oil imports.  A certain irreducible minimum of time has to be scheduled to attend to the sand problem. Plus, the regime may well end up having to ask the Americans for assistance.  figuring out a way to stem that advance will require serious engineering and desert-ecology expertise. Slugging it out with the Trump Administration in some war of personality is not opportune. 

So China can play the rebuffed suitor game for now, as their inventory bleeds down.  But once that runs out, they are out of realistic options.

Overall, I suspect China is even more locked in to the USA than the USA is into China.  

 

I don't see another Tiananmen Square episode happening again.

Big brother is well and truly in control.

http://www.abc.net.au/foreign/leave-no-dark-corner/10264302

I recommend a trip to China before all these opinionated comments and you might come away with a different viewpoint.

 

[ceo_energemsier + 1,818]

9 hours ago, KevinH said:

I don't see another Tiananmen Square episode happening again.

Big brother is well and truly in control.

http://www.abc.net.au/foreign/leave-no-dark-corner/10264302

I recommend a trip to China before all these opinionated comments and you might come away with a different viewpoint.

 

Kevin,

By the Chinese, you work with you mean who live in the Land Down Under.

BTW I have 3 business offices in China, and visit very frequently. Perhaps having made statements on this forum I may get banned from entering China again?

You should know that the Chinese are buying vast resources in the Land Down Under for agri.

 

[KevinH + 11]

3 hours ago, ceo_energemsier said:

Kevin,

By the Chinese, you work with you mean who live in the Land Down Under.

BTW I have 3 business offices in China, and visit very frequently. Perhaps having made statements on this forum I may get banned from entering China again?

You should know that the Chinese are buying vast resources in the Land Down Under for agri.

 

Yes Mate,

Mainland chinese who live in Oz working on a chinese owned project where I also work.

I know quite a bit about chinese activity not just here but in Asia and Africa as well having visited and witnessed first hand the impact of that "investment"  in Malaysia, and Zambia last week.

And I was also in China earlier this year.

The chinese are buying vast resources and agri land wherever they can get it, not just in Oz.

I'm not a chinaphobe or super supporter, merely an observer based on seeing and experiencing with my own eyes.

This thread seems to be biased one way and I was keen to put forward a different view.

[KevinH + 11]

And This:

https://www.smh.com.au/world/north-america/president-s-folly-china-reaches-into-us-heartland-in-trade-war-20180924-p505ky.html

Hard to know who to believe with all the "fake news" going around ?